Bank CD

CD literally means Certificate of Deposit and is an investment vehicle that many use to safely grow their savings. A set amount of money is deposited with the promise of keeping it there for a predetermined amount of time at a predetermined interest rate. For example, you can place $500.00 into a 6 month CD at 4.5%. This means that you would give the bank $500.00 with the promise of leaving it with them for 6 months, and they would then give you $511.36 at the end of the expiration date (or at maturity).

Nearly all banks offer CDs and they are a basic staple in the realm of conservative investments. The interest rates will vary greatly based on the bank, the amount you invest (principle), and the length of time you invest (term). A great resource for browsing the various offerings is Bankrate.com.

There are many reasons that people might want to invest in a CD. They are a very safe investment, they yield a little more than a traditional savings account, and the money is still fully insured by the FDIC.

Part of the reason for the safety of a CD is the fact that the money is being held at a bank you trust, but the larger reason is that it is insured. The Federal Depository Insurance Company (FDIC) fully insures your investment up to a certain amount. To verify how much of your money is insured you can go to FDIC.gov to check. As of the writing of this article it is up to $250,000.00 but it could change at any time.

CDs ordinarily yield more than a traditional savings account. This is mainly due to the fact that your money is technically locked up for a guaranteed time. if your CD does not yield more than your traditional savings account then you should probably back out of it unless there is some good tax reason.

The reason CDs pay more than a savings account is because you have promised to keep your money with them for a specified amount of time. Many banks will allow you to take your money out, but this most likely won't be without fees. It is possible to even lose a portion of the principle on breaking the terms. If you might need to have access to the money then you may not want invest in a CD. You can also consider CD Laddering as an alternative.

In short, CD Laddering is a great way of structuring CDs in a manner so that one is maturing every 3, 6, 9, or 12 months. This way you have a constant flow of money maturing.